Ross Healy, chairman at Strategic Analysis Corporation and portfolio manager at MacNicol and Associates Asset Management

Focus: North American large caps
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MARKET OUTLOOK

NEEDED: A CHANGE OF SOCKS
Following the election of Donald Trump to the U.S. presidency, I would have thought that one of the least contentious issues was the probability of rising interest rates. With Trump’s fiscal initiatives, including lower taxes, infrastructure and energy spending, and a possible massive capital repatriation, not to mention the pressure that he is bringing to bear on U.S. corporations to “Build American”, one might well assume that the U.S. economy will be strong. Add to that the Fed statements that rates are going up three times in 2017 because of that strength, a forecast of rising rates should be a lock. And, I hasten to add, this is not at all bad for the stock market as it usually tends to mark the second phase of bull markets — the part entailing rising interest rates. As long as the yield curve is flat to positively-sloped — and it is — then the economy and the stock market have historically tended to remain positive.

The anticipation, although not the delivery, is now “in the market”, and the question is, what comes next? We all thought that the U.S. dollar would have to go up in this environment, but suddenly Mr. Trump came along and tweeted on Tuesday that the U.S. dollar was too high and it should come down — which it did. Abruptly. Which brought a setback to all of those stocks which had been doing so nicely. And so we have to ask the question, how much power do Trump’s tweets actually possess? He is now seeking to fight the very economic tide that he set out to produce!

Well, it’s been tried before, and, as I recall, all that King Canute got out of it was wet feet, so I suspect that King Donald had better start looking for a change of socks. In the short term, however, after a very nice run in the interest-sensitive stocks, the market was due for a bit of a rest — and it is taking one. The thing that is unsettling is the essential randomness of Trump’s targets; today it’s BMW and China, tomorrow it’s the Euro and the drug companies, all of which keeps everyone a little bit off kilter. So far, too few so far are willing to stand up to him and it is causing some mayhem in the market.

Tomorrow — Friday — is Day 1 in a truly brand new regime, completely rudderless from a political philosophic point of view, and driven by tweets of the day. The government is “Republican” in name only and the outlook remains murky — some by circumstance and some by design. I will stick with the consensus forecast that interest rates and the U.S. dollar will head higher until we are able to see what will really happen when Trump meets Congress — an irresistible force and an immovable object — when, I am sure, we will start to find out what bare-knuckle politics is all about.

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